(Former name, former address
and former fiscal year,
if changed since last report.)

Indicate by check mark whether
the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o

Indicate by check mark whether
the Registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Indicate by check mark whether
the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No x

There
were 321,420,371 shares of the registrants common stock, par value $0.01 per
share, issued and outstanding as of August 10, 2007.

To the Board of Directors and Stockholders
of Hertz Global Holdings, Inc.:

We have reviewed the accompanying condensed
consolidated balance sheet of Hertz Global Holdings, Inc. and its
subsidiaries as of June 30, 2007 and the related consolidated statements
of operations for each of the three-month and six-month periods ended June 30,
2007 and June 30, 2006 and the consolidated statements of cash flows for
the six-month periods ended June 30, 2007 and June 30, 2006. These
interim financial statements are the responsibility of the Companys
management.

We conducted our review in accordance with the
standards of the Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed consolidated
balance sheet and the related interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.

We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as
of December 31, 2006 and the related consolidated statements of
operations, of stockholders equity and of cash flows for the year then ended
(not presented herein), and in our report dated March 30, 2007 we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2006 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.

Hertz Global Holdings, Inc., or Hertz Holdings,
is our top-level holding company. The Hertz Corporation, or Hertz, is our
primary operating company and a direct wholly owned subsidiary of Hertz
Investors, Inc., which is wholly owned by Hertz Holdings. We, us and our
mean Hertz Holdings and its consolidated subsidiaries, including Hertz.

We are a successor to corporations that have been
engaged in the car and truck rental and leasing business since 1918 and the
equipment rental business since 1965. Hertz Holdings was incorporated in
Delaware in 2005 and had no operations prior to the Acquisition (as defined
below). Hertz was incorporated in Delaware in 1967. Ford Motor Company, or Ford,
acquired an ownership interest in Hertz in 1987. Prior to this, Hertz was a
subsidiary of UAL Corporation (formerly Allegis Corporation), which acquired
Hertzs outstanding capital stock from RCA Corporation in 1985.

On December 21, 2005, or the Closing Date,
investment funds associated with or designated by Clayton, Dubilier &
Rice, Inc., or CD&R, The Carlyle Group, or Carlyle, and Merrill
Lynch Global Private Equity, or MLGPE, or collectively the Sponsors,
through CCMG Acquisition Corporation, a wholly owned subsidiary of Hertz
Holdings (previously known as CCMG Holdings, Inc.) acquired all of Hertzs
common stock from Ford Holdings LLC for aggregate consideration of $4,379
million in cash, debt refinanced or assumed of $10,116 million and transaction
fees and expenses of $447 million.

We refer to the acquisition of all of Hertzs common
stock through a wholly owned subsidiary of Hertz Holdings as the Acquisition.
We refer to the Acquisition, together with related transactions entered into to
finance the cash consideration for the Acquisition, to refinance certain of our
existing indebtedness and to pay related transaction fees and expenses, as the Transactions.

In November 2006, we completed our initial public
offering of 88,235,000 shares of our common stock at a per share price of
$15.00, with proceeds to us before underwriting discounts and offering expenses
of approximately $1.3 billion. The proceeds were used to repay borrowings that
were outstanding under a $1.0 billion loan facility entered into by Hertz
Holdings, or the Hertz Holdings Loan Facility, and to pay related transaction
fees and expenses. The proceeds were also used to pay special cash dividends of
$1.12 per share on November 21, 2006 to stockholders of record of Hertz
Holdings immediately prior to the initial public offering.

In June 2007, the Sponsors completed a secondary
public offering of 51,750,000 shares of their Hertz Holdings common stock at a
per share price of $22.25. We did not receive any of the proceeds from the sale
of these shares. We paid all of the expenses of the offering, excluding
underwriting discounts and commissions of the selling stockholders, pursuant to
a registration rights agreement we entered into at the time of the Acquisition.
These expenses aggregated to approximately $2.0 million. Immediately following
the secondary public offering, the Sponsors ownership percentage in us
decreased to approximately 55%.

The significant accounting policies summarized in Note
1 to our audited consolidated financial statements contained in our Annual
Report on Form 10-K for the fiscal year ended December 31,
2006, filed with the United States Securities and Exchange Commission on March 30,
2007, or the Form 10-K, have been followed in preparing the
accompanying condensed consolidated financial statements.

In our opinion, all adjustments (which include only
normal recurring adjustments) necessary for a fair statement of the results of
operations for the interim periods have been made. Results for interim periods
are not necessarily indicative of results for a full year.

The December 31, 2006 condensed consolidated
balance sheet data was derived from our audited financial statements, but does
not include all disclosures required by accounting principles generally
accepted in the United States of America, or GAAP.

Certain prior period amounts
have been reclassified to conform with current reporting.

In September 2006, the Financial Accounting
Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, or SFAS No. 157. This pronouncement defines
fair value, establishes a framework for measuring fair value in accordance with
GAAP and expands disclosures about fair value measurements. The provisions of
SFAS No. 157 are effective for the fiscal year beginning after November 15,
2007. We are currently reviewing SFAS No. 157 to determine its impact, if
any, on our financial position or results of operations.

In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. The
provisions of SFAS No. 159 are effective for the fiscal year beginning
after November 15, 2007. We are currently reviewing SFAS No. 159 to
determine its impact, if any, on our financial position or results of
operations.

We consider
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.

Restricted
cash includes cash and equivalents that are not readily available for our
normal disbursements. Restricted cash and equivalents are restricted for the
acquisition of vehicles and other specified uses under our fleet debt programs,
our like-kind exchange programs and to satisfy certain of our self-insurance
regulatory reserve requirements. As of June 30, 2007 and December 31,
2006, the portion of total restricted cash that was associated with our fleet
debt was $148.3 million and $487.0 million, respectively.

We account
for goodwill under SFAS No. 142, Goodwill and Other Intangible Assets.
Under SFAS No. 142, goodwill must be tested for impairment at least
annually. For 2007, we conducted the required annual goodwill and
indefinite-lived intangible asset impairment test in the second quarter and
determined that there was no impairment.

The following summarizes the
changes in our goodwill, by segment, for the periods presented (in thousands of
dollars):

Car Rental

Equipment
Rental

Total

Balance as of
December 31, 2006

$

336,579

$

628,114

$

964,693

Changes(1)

18,497

2,157

20,654

Balance as of June 30,
2007

$

355,076

$

630,271

$

985,347

(1)Consists of changes
primarily resulting from the adoption of FIN 48 (see Note 5Taxes on Income) and
the translation of foreign currencies at different exchange rates from the
beginning of the period to the end of the period.

Other
intangible assets, net, consisted of the following major classes (in thousands
of dollars):

June 30, 2007

December 31, 2006

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Amortized intangible
assets:

Customer-related

$

612,297

$

(93,674

)

$

518,623

$

611,783

$

(63,046

)

$

548,737

Other

1,290

(650

)

640

1,270

(512

)

758

Total

613,587

(94,324

)

519,263

613,053

(63,558

)

549,495

Indefinite-lived
intangible assets:

Trade name

2,624,000



2,624,000

2,624,000



2,624,000

Total other
intangible assets, net

$

3,237,587

$

(94,324

)

$

3,143,263

$

3,237,053

$

(63,558

)

$

3,173,495

Amortization
of other intangible assets for the three months ended June 30, 2007 and
2006 was approximately $15.4 million and $15.3 million, respectively, and for
the six months ended June 30, 2007 and 2006 was approximately $30.8
million and $30.8 million, respectively. Future amortization expense of other
intangible assets is expected to be approximately $61.2 million per year for
each of the next five years.

The provision for taxes on income is determined using
the estimated effective tax rate applicable for the full year. The effective
tax rate for the three and six months ended June 30, 2007 is 37.3% and
40.5%, respectively, which reflects the impact of not providing a benefit for
losses in certain countries.

We adopted the provisions of FASB Interpretation No. 48,
or FIN 48, Accounting for Uncertainty in Income Taxesan Interpretation of
FASB Statement No. 109, on January 1, 2007. Upon adoption, we
recorded an $18.9 million increase to our liabilities for unrecognized tax
benefits. The increase in liabilities was recorded as a charge of $3.6 million
and an increase of $15.3 million to the January 1, 2007 retained earnings
and goodwill balances, respectively. As of the adoption date, we had gross tax

effected unrecognized tax benefits of $20.3 million,
of which $5.1 million, if recognized, would favorably impact the effective tax
rate in future periods.

We conduct business globally and, as a result, file
one or more income tax returns in the U.S. federal jurisdiction and various
state and non-U.S. jurisdictions. In the normal course of business we are
subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Australia, the Netherlands, Brazil, Canada, France,
Germany, Italy, Spain, Ireland, the United Kingdom and the United States. The
open tax years for these jurisdictions span from 1991 to 2006. The tax
indemnification agreement entered into with Ford on the Closing Date
indemnifies Hertz from U.S. federal and unitary state, and certain combined
non-U.S. income tax liabilities for all periods prior to December 21,
2005.

In many cases our uncertain tax positions are related
to tax years that remain subject to examination by the relevant taxing
authorities. We are not currently under audit by the Internal Revenue Service
but are under audit in several non-U.S. jurisdictions. It is reasonably
possible that a $3.3 million tax liability, attributable to an uncertain tax
position, may reverse within the next twelve months.

Interest and penalties related
to the liabilities for unrecognized tax benefits are classified as a component
of Provision for taxes on income in our consolidated statement of operations.
Accrued interest (net of benefit) and penalties recorded at January 1,
2007 in our condensed consolidated balance sheet was $12.5 million.

Depreciation of revenue earning equipment includes the
following (in thousands of dollars):

Three Months Ended
June 30,

2007

2006

Depreciation of revenue earning equipment

$

480,537

$

439,211

Adjustment of depreciation upon disposal of the equipment

41

(9,334

)

Rents paid for vehicles leased

15,459

6,343

Total

$

496,037

$

436,220

Six Months Ended
June 30,

2007

2006

Depreciation of revenue earning equipment

$

931,902

$

857,851

Adjustment of depreciation upon disposal of the equipment

5,097

(26,345

)

Rents paid for vehicles leased

26,855

11,968

Total

$

963,854

$

843,474

The adjustment of depreciation upon disposal of
revenue earning equipment for the three months ended June 30, 2007 and
2006 included a net loss of $3.5 million and a net gain of $3.2 million,
respectively, on the disposal of vehicles in our car rental operations and net
gains of $3.5 million and $6.1 million, respectively, on the disposal of
industrial and construction equipment used in our equipment rental operations. The adjustment of depreciation upon disposal
of revenue earning equipment for the six months ended June 30, 2007 and
2006 included a net loss of $12.0 million and a net gain of $14.3 million,
respectively, on the disposal of vehicles in our car rental operations and

net gains
of $6.9 million and $12.0 million, respectively, on the disposal of
industrial and construction equipment in our equipment rental operations.

Depreciation rates are
reviewed on an ongoing basis based on managements routine review of present
and estimated future market conditions and their effect on residual values at
the time of disposal. Effective January 1, 2007 and April 1, 2007,
depreciation rates being used to compute the provision for depreciation of
revenue earning equipment were increased on certain vehicles in our U.S. and
Canadian car rental operations and were decreased effective January 1,
2007 and increased effective April 1, 2007, in our other international car
rental operations, in each case, to reflect changes in the estimated residual
values to be realized when revenue earning equipment is sold. These
depreciation rate changes resulted in net increases of $3.7 million, $0.6
million and $2.0 million, respectively, in depreciation expense for the three
months ended June 30, 2007 and net increases of $9.0 million, $0.8 million
and $1.6 million, respectively, in depreciation expense for the six months
ended June 30, 2007. Effective April 1, 2007, depreciation rates in
our U.S. equipment rental operations were decreased and resulted in a net
decrease of $3.0 million in depreciation expense for the three and six months
ended June 30, 2007. Effective April 1, 2006 and January 1,
2007, depreciation rates in our French equipment rental operations were
decreased and resulted in a net reduction of $0.3 million and $2.2 million in
depreciation expense for the three and six months ended June 30, 2007,
respectively.

Our Senior Term Facility is a facility entered into
by Hertz in connection with the Acquisition consisting of (a) a maximum
borrowing capacity of $2,000 million (which was decreased in February 2007
to $1,400 million), which included a delayed draw facility of $293 million
(which was utilized during 2006) and (b) a synthetic letter of credit
facility in an aggregate principal amount of $250 million.

Our Senior ABL Facility is a senior asset-based
revolving loan facility entered into by Hertz and certain of its U.S. and of
its Canadian subsidiaries in connection with the Acquisition with a maximum
borrowing capacity of $1,600 million (which was increased in February to
$1,800 million). Up to $200.0 million of the revolving loan facility is
available for the issuance of letters of credit. We refer to the Senior Term
Facility and the Senior ABL Facility together as the Senior Credit Facilities.

Our Senior Dollar Notes are the $1,800 million
aggregate principal amount of 8.875% Senior Notes due 2014 issued by Hertz in
connection with the Acquisition. Our Senior Subordinated Notes refer to the
$600 million aggregate principal amount of 10.5% Senior Subordinated Notes due
2016 issued by Hertz in connection with the Acquisition. Our Senior Euro Notes
are the 225 million aggregate principal amount of
7.875% Senior Notes due 2014 issued by Hertz in connection with the
Acquisition. We refer to the Senior Dollar Notes and the Senior Euro Notes
together as the Senior Notes.

Our Promissory Notes consist of the outstanding
untendered senior notes issued under three separate indentures existing prior
to the Acquisition. These senior notes have maturities ranging from 2007 to
2028.

Our U.S. Fleet Debt consists of approximately $4,300
million of asset-backed securities issued on the Closing Date by a special
purpose entity wholly owned by us, backed by our U.S. car rental fleet, all of
which we issued under our existing asset-backed notes program, or the ABS
Program. An additional $600 million of previously issued asset-backed
medium term notes, or Pre-Acquisition ABS

Notes, having maturities from 2007 to 2009 remained
outstanding under the ABS Program following the closing of the Transactions
($265 million of which have subsequently matured). We have also issued
approximately $1,500 million of variable funding notes on the Closing Date in
two series under these facilities, none of which were funded
on the Closing Date.

Our International Fleet Debt consists of the aggregate
borrowings of our foreign subsidiaries under asset-based revolving loan
facilities, subject to borrowing bases comprised of rental vehicles, rental
equipment, and related assets of certain of our foreign subsidiaries
(substantially all of which are organized outside of the United States) or one
or more special purpose entities, as the case may be, and rental equipment and
related assets of certain of our subsidiaries organized outside North America
or one or more special purpose entities, as the case may be. The subsidiaries
conducting the car rental business in certain European jurisdictions may, at
their option, continue to engage in capital lease financings relating to
revenue earning equipment outside the International Fleet Debt facilities.

Our Fleet Financing Facility is a credit agreement
entered into by Hertz and its subsidiary, Puerto Ricancars, Inc., or PR
Cars, in September 2006, which provides for a commitment of up to $275 million
to finance the acquisition of Hertzs and/or PR Cars fleet in Hawaii, Kansas,
Puerto Rico and St. Thomas, the U.S. Virgin Islands.

Our Brazilian Credit Facility consists of revolving
and term credit facilities entered into by our Brazilian subsidiary in April 2007.
The maximum amount that may be borrowed under this facility is R$130 million
(or $67.6 million, calculated using exchange rates in effect on June 30,
2007) maturing in December 2010.

Our Canadian Fleet Financing Facility consists of an
asset-backed borrowing facility to provide financing for our Canadian rental
car fleet entered into in May 2007. The maximum amount which may be
borrowed under this facility is CAN$400 million (or $376.3 million) maturing in
May 2012.

Our Belgian Revolving Credit Facility consists of a
revolving credit facility entered into by Hertz
Belgium BVBA of up to 23.4 million (or $31.6
million) maturing in December 2010.

The aggregate amounts of maturities of debt for each
of the twelve-month periods ending June 30 (in millions of dollars) are as
follows: 2008, $3,417.4 (including $3,123.9 of other short-term borrowings);
2009, $1,155.5; 2010, $1,258.7; 2011, $2,236.7; 2012, $121; after 2012,
$4,325.6.

As of June 30, 2007, there were outstanding
standby letters of credit totaling $468.4 million. Of this amount, $234.0
million has been issued for the benefit of the ABS Program ($200.0 million of
which was issued by Ford and $34.0 million of which was issued under the Senior
Credit Facilities) and the remainder is primarily issued to support
self-insurance programs (including insurance policies with respect to which we
have indemnified the issuers for any losses) in the United States, Canada and
in Europe and to support airport concession obligations in the United States
and Canada. As of June 30, 2007, the full amount of these letters of
credit was undrawn.

As of June 30, 2007, there were $35.9 million of
capital lease financings outstanding. These capital lease financings are
included in the International Fleet Debt total.

On January 12, 2007, Hertz completed exchange
offers for its outstanding Senior Notes and Senior Subordinated Notes whereby
over 99% of the outstanding notes were exchanged for a like principal amount of
new notes with identical terms that were registered under the Securities Act of
1933 pursuant to a registration statement on Form S-4.

On February 9, 2007, Hertz entered into an
amendment to its Senior Term Facility. The amendment was entered into for the
purpose of (i) lowering the interest rates payable on the Senior Term
Facility by up to 50 basis points from the interest rates previously payable
thereunder, and revising financial ratio requirements for specific interest
rate levels; (ii) eliminating certain mandatory prepayment requirements; (iii) increasing
the amounts of certain other types of indebtedness that Hertz and its
subsidiaries may incur outside of the Senior Term Facility; (iv) permitting
certain additional asset dispositions and sale and leaseback transactions; and (v) effecting
certain technical and administrative changes to the Senior Term Facility.
During the three months ended March 31, 2007, we recorded an expense of
$13.9 million, in our consolidated statement of operations, in Interest, net
of interest income, associated with the write off of debt costs in connection
with the amendment of the Senior Term Facility. Additionally, in February 2007,
we repaid a portion of the Senior Term Facility, bringing the maximum borrowing
capacity down from $2,000 million to $1,400 million.

On February 15, 2007, Hertz, Hertz Equipment
Rental Corporation and certain other subsidiaries entered into an amendment to
its Senior ABL Facility. The amendment was entered into for the purpose of (i) lowering
the interest rates payable on the Senior ABL Facility by up to 25 basis points
from the interest rates previously payable thereunder, and revising financial
ratio requirements for specific interest rate levels; (ii) increasing the
availability under the Senior ABL Facility from $1,600 million to $1,800
million; (iii) extending the term of the commitments under the Senior ABL
Facility to February 15, 2012; (iv) increasing the amounts of certain
other types of indebtedness that the borrowers and their subsidiaries may incur
outside of the Senior ABL Facility; (iv) permitting certain additional
asset dispositions and sale and leaseback transactions; and (v) effecting
certain technical and administrative changes to the Senior ABL Facility. During
the three months ended March 31, 2007, we recorded an expense of $2.2
million, in our consolidated statement of operations, in Interest, net of
interest income, associated with the write off of debt costs in connection
with the amendment of the Senior ABL Facility.

On March 21, 2007, certain of the agreements
relating to the International Fleet Debt facilities were amended and restated
for the purpose of, among other things, (i) extending the dates when
margins on the facilities are scheduled to step up, subject to satisfaction of
interim goals pertaining to the execution of agreements with automobile
manufacturers and dealers that are required in connection with the planned
securitization of the international car rental fleet and the take-out of the
Tranche A1 and Tranche A2 loans; (ii) subject to certain conditions,
permitting the financing of value-added tax

receivables under the facilities; and (iii) effecting
certain technical and administrative changes
to the terms of the facilities. Additionally, the Intercreditor deed pertaining
to the International Fleet Debt facilities was amended, to among other things,
remove the Brazilian facility.

On April 4, 2007, our Brazilian subsidiary
entered into the Brazilian Credit Facility, an agreement amending and restating
its credit facility (which was originally under the International Fleet Debt
facility) to, among other things, increase the facility to R$130 million (or
$67.6 million) consisting of an R$70 million (or $36.4 million) term loan
facility and an R$60 million (or $31.2 million) revolving credit facility. This
facility will mature on December 21, 2010.

On May 30, 2007, a Canadian subsidiary, Hertz
Canada Limited, and certain of its subsidiaries, entered into a Note Purchase
Agreement with CARE Trust, a special purpose commercial paper conduit
administered by Bank of Montreal, and certain related agreements and
transactions, in order to establish the Canadian Fleet Financing Facility, an
asset-backed borrowing facility to provide financing for our Canadian rental
car fleet. The new facility refinanced the Canadian portion of the
International Fleet Debt facilities. The maximum amount which may be borrowed
under the new facility is CAN$400 million (or $376.3 million). The new facility
has a term of five years.

On June 21, 2007, our
Belgian subsidiary, Hertz Belgium BVBA, entered into the Belgian Revolving
Credit Facility, a secured revolving credit facility for up to 23.4
million (or $31.6 million) maturing in December 2010. The new facility
refinanced the Belgian portion of the International Fleet Debt facilities.

Hertzs obligations under the Senior Term Facility and
the Senior ABL Facility are guaranteed by Hertz Investors, Inc., its
immediate parent, and most of its direct and indirect domestic subsidiaries
(subject to certain exceptions, including for subsidiaries involved in the U.S.
Fleet Debt Facility and similar special purpose financings), though Hertz
Equipment Rental Corporation does not guarantee Hertzs obligations under the
Senior ABL Facility because it is a borrower under that facility. In addition,
the obligations of the Canadian borrowers under the Senior ABL Facility are
guaranteed by their respective subsidiaries, if any, subject to limited
exceptions. The lenders under each of the Senior Term Facility and the Senior
ABL Facility have received a security interest in substantially all of the
tangible and intangible assets of the borrowers and guarantors under those
facilities, including pledges of the stock of certain of their respective
subsidiaries, subject in each case to certain exceptions (including in respect
of the U.S. Fleet Debt, the International Fleet Debt and, in the case of the
Senior ABL Facility, other secured fleet financing). Consequently, these assets
will not be available to satisfy the claims of Hertzs general creditors.

The obligations of the borrowers under the
International Fleet Debt facilities are guaranteed by Hertz International,
Ltd., or HIL, and by the other borrowers and certain related entities under
the applicable tranche, in each case subject to certain legal, tax, cost and
other structuring considerations. The obligations and the guarantees of the
obligations of the Tranche A borrowers under the Tranche A2 loans are
subordinated to the obligations and the guarantees of the obligations of such
borrowers under the Tranche A1 loans. Subject to legal, tax, cost and other
structuring considerations and to certain exceptions, the International Fleet
Debt facilities are secured by a material part of the assets of each borrower,
certain related entities and each guarantor, including pledges of the capital
stock of each borrower and certain related entities. The obligations of the
Tranche A borrowers under the Tranche A2 loans and the guarantees thereof are
secured on a junior

second priority basis by any assets securing the
obligations of the Tranche A borrowers under the Tranche A1 loans and the
guarantees thereof. The assets that collateralize the International Fleet Debt
facilities will not be available to satisfy the claims of Hertzs general
creditors.

The obligations of each of the borrowers under the
Fleet Financing Facility are guaranteed by each of Hertzs direct and indirect
domestic subsidiaries (other than subsidiaries whose only material assets
consist of securities and debt of foreign subsidiaries and related assets,
subsidiaries involved in the ABS Program or other similar special purpose
financings, subsidiaries with minority ownership positions, certain
subsidiaries of foreign subsidiaries and certain immaterial subsidiaries). In
addition, the obligations of PR Cars are guaranteed by Hertz. The obligations
of Hertz under the Fleet Financing Facility and the other loan documents,
including, without limitation, its guarantee of PR Cars obligations under the
Fleet Financing Facility, are secured by security interests in Hertzs rental
car fleet in Hawaii and by certain assets related to Hertzs rental car fleet
in Hawaii and Kansas, including, without limitation, manufacturer repurchase
program agreements. PR Cars obligations under the Fleet Financing Facility and
the other loan documents are secured by security interests in PR Cars rental
car fleet in Puerto Rico and St. Thomas, the U.S. Virgin Islands and by
certain assets related thereto.

In addition, Hertz has guaranteed the obligations of
its Brazilian subsidiary under its loan agreement, as amended and restated as
of April 4, 2007, up to an aggregate principal amount of $63.5 million.
That guarantee is secured equally and ratably with borrowings under the Senior
Term Facility.

The obligations of Hertz Belgium
BVBA under the Belgian Revolving Credit Facility are guaranteed by HIL.

Certain of our debt
instruments and credit facilities contain a number of covenants that, among
other things, limit or restrict the ability of the borrowers and the guarantors
to dispose of assets, incur additional indebtedness, incur guarantee
obligations, prepay other indebtedness, make dividends and other restricted
payments, create liens, make investments, make acquisitions, engage in mergers,
change the nature of their business, make capital expenditures, or engage in
certain transactions with affiliates. Some of these agreements also require the
maintenance of certain financial covenants. As of June 30, 2007, we were
in compliance with all of these financial covenants.

In connection with the Acquisition and the issuance of
$3,550.0 million of floating rate U.S. Fleet Debt, Hertz Vehicle Financing LLC,
or HVF, entered into certain interest rate swap agreements, or the HVF
Swaps, effective December 21, 2005, which qualify as cash flow hedging
instruments in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. These agreements mature at various terms,
in connection with the scheduled maturity of the associated debt obligations,
through November 25, 2011. Under these agreements, HVF pays monthly
interest at a fixed rate of 4.5% per annum in exchange for monthly amounts at
one-month LIBOR, effectively transforming the floating rate U.S. Fleet Debt to
fixed rate obligations. HVF
paid $44.8 million to reduce the fixed interest rate on the swap from the
prevailing market rates to 4.5%. Ultimately, this amount will be recognized as
additional interest expense over the remaining terms of the swaps, which range
from 2 to 4 years. For the three months ended March 31, 2007, we recorded
an expense of $12.8 million in our consolidated statement of operations, in Interest,
net of interest income,

associated with the
ineffectiveness of the HVF Swaps. The ineffectiveness resulted from a decline
in the value of the swaps due to the decreasing forward interest rates along
with a decrease in the time value component as we continue to approach the
maturity dates of the swaps. However, during the three months ended June 30,
2007, forward interest rates increased steadily, resulting in a higher fair
value of the swaps, which more than offset the decline related to the
diminishing time value component, resulting in the reversal of the $12.8
million of expense previously recognized. As of June 30, 2007, the fair
value of the HVF Swaps was $68.9 million, which is reflected in the condensed
consolidated balance sheet in Prepaid expenses and other assets.

In May 2006, in
connection with the forecasted issuance of the permanent take-out international
asset-based facilities, HIL purchased two swaptions for 3.3
million, to protect itself from interest rate increases. These swaptions gave
HIL the right, but not the obligation, to enter into three year interest rate
swaps, based on a total notional amount of 600 million at an interest
rate of 4.155%. The swaptions were renewed in 2007 prior to their scheduled
expiration date of March 15, 2007, at a cost of 1.8
million, and now expire on September 5, 2007. As of June 30, 2007,
the fair value of the swaptions was 10.5 million (or $14.1
million), which is reflected in our condensed consolidated balance sheet in Prepaid
expenses and other assets. During the three and six months ended June 30,
2007, the fair value adjustment related to these swaptions was a gain of $10.2
million and $9.9 million, respectively, which was recorded in our consolidated
statement of operations in Selling, general and administrative expenses.

As of June 30,
2007, the following credit facilities were available for the use of Hertz and
its subsidiaries:

·The
Senior Term Facility had approximately $3.5 million available under the
letter of credit facility.

·The
Senior ABL Facility had the foreign currency equivalent of approximately
$1,649.8 million of remaining capacity, all of which was available under
the borrowing base limitation and $181.9 million of which was available
under the letter of credit facility sublimit.

·The
U.S. Fleet Debt had approximately $930.0 million of remaining capacity and
$38.0 million available under the borrowing base limitation. No additional
amounts were available under the letter of credit facility.

·The
International Fleet Debt facilities had the foreign currency equivalent of
approximately $981.6 million of remaining capacity and $193.5 million
available under the borrowing base limitation.

·The
Fleet Financing Facility had approximately $95.0 million of remaining
capacity and $7.5 million available under the borrowing base limitation.

·The
Brazilian Credit Facility had the foreign currency equivalent of approximately
$10.3 million of remaining capacity and $0.5 million available under the
borrowing base limitation.

·The
Canadian Fleet Financing Facility had the foreign currency equivalent of
approximately $152.9 million of remaining capacity and no amounts
available under the borrowing base limitation.

The
following table sets forth the net periodic pension and postretirement
(including health care, life insurance and auto) expense (in millions of dollars):

Three Months Ended June 30,

Pension Benefits

Postretirement

U.S.

Non-U.S.

Benefits (U.S.)

2007

2006

2007

2006

2007

2006

Components of Net Periodic
Benefit Cost:

Service cost

$

6.6

$

6.8

$

2.8

$

2.3

$

0.1

$

0.1

Interest cost

6.2

5.2

2.6

1.9

0.3

0.3

Expected return on plan
assets

(6.4

)

(5.9

)

(2.6

)

(2.0

)





Amortization: Losses and
other

0.1





0.2





Settlement/curtailment
gain

(4.9

)







(0.1

)



Net pension/postretirement expense

$

1.6

$

6.1

$

2.8

$

2.4

$

0.3

$

0.4

Six Months Ended June 30,

Pension Benefits

Postretirement

U.S.

Non-U.S.

Benefits (U.S.)

2007

2006

2007

2006

2007

2006

Components of Net Periodic
Benefit Cost:

Service cost

$

13.6

$

14.0

$

5.3

$

4.5

$

0.2

$

0.2

Interest cost

12.3

10.8

4.9

3.9

0.5

0.5

Expected return on plan
assets

(12.7

)

(12.1

)

(5.3

)

(3.7

)





Amortization: Losses and
other

0.1





0.2

(0.1

)



Settlement/curtailment
(gain) loss

(0.3

)



(0.1

)



0.2



Net pension/postretirement expense

$

13.0

$

12.7

$

4.8

$

4.9

$

0.8

$

0.7

Our policy
for funded plans is to contribute annually, at a minimum, amounts required by
applicable laws, regulations and union agreements. From time to time, we make
contributions beyond those legally required. For the three and six months ended
June 30, 2007, we contributed $3.8 million and $16.0 million,
respectively, to our funded worldwide pension plans and benefit payments made
through unfunded plans.

We participate in various multiemployer
pension plans administrated by labor unions representing some of our employees.
We make periodic contributions to these plans to allow them to meet their
pension benefit obligations to their participants. In the event that we
withdrew from participation in one of these plans, then applicable law could
require us to make an additional lump-sum contribution to the plan, and we
would have to reflect that as an expense in our consolidated statement of
operations and as a liability on our condensed consolidated balance sheet. Our
withdrawal liability for any multiemployer plan would depend on the extent of
the plans funding of vested benefits. We currently do not expect to incur any
material withdrawal liability in the near future. However, in the ordinary
course of our renegotiation of collective bargaining agreements with labor
unions that maintain these plans, we could decide to discontinue participation
in a plan, and in that event we could face a withdrawal liability. Some
multiemployer plans, including one in which we participate, are reported to
have significant underfunded liabilities. Such underfunding could increase the
size of our potential withdrawal liability.

In May 2007,
Hertz Holdings granted options to acquire 1,030,007 shares of Hertz Holdings
common stock to key executives, employees, and non-management directors at
exercise prices ranging from $20.55 to $21.87. These options are subject to and
governed by the terms of the Hertz Global Holdings, Inc. Stock Incentive
Plan, or the Stock Incentive Plan, and the Hertz Global Holdings, Inc.
Director Stock Incentive Plan, or the Director Plan. We have accounted for
our employee stock-based compensation awards in accordance with SFAS No. 123R,
Share-Based Payment. The options are being accounted for as equity-classified
awards.

For
the three and six months ended June 30, 2007, we recognized compensation
cost of approximately $8.3 million ($5.1 million, net of tax) and $15.3 million
($9.4 million, net of tax) respectively. As of June 30, 2007, there was
approximately $101.3 million of total unrecognized compensation cost related to
non-vested stock options granted by Hertz Holdings under the Stock
Incentive Plan, including costs related to modifying the exercise prices of
certain option grants in order to preserve the intrinsic value of the options,
consistent with applicable tax law, to reflect special cash dividends of $4.32
per share paid on June 30, 2006 and $1.12 per share paid on November 21,
2006. These remaining costs are expected to be recognized over the remaining
2.3 years of the five-year requisite service period that began on the grant
dates.

Note 10Segment Information

In accordance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, we disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance.

Our operating segments are aggregated into reportable
business segments based primarily upon similar economic characteristics,
products, services, customers and delivery methods. We have identified two
segments: rental of cars and light trucks, or car rental, and rental of
industrial, construction and material handling equipment, or equipment rental.
Corporate and other includes general corporate expenses, certain interest
expense (including net interest on corporate debt), as well as other business
activities such as our third-party claim management services.

On January 1,
2007, we changed our measure of segment profitability from income (loss) before
income taxes and minority interest to adjusted pre-tax income (loss) as this
measure is now being

utilized
by management in making decisions about allocating resources to segments and
measuring their performance. We believe this measure better reflects the
financial results from ongoing operations. Adjusted pre-tax income (loss) is
calculated as income (loss) before income taxes and minority interest plus
non-cash purchase accounting charges, non-cash debt charges relating to the
amortization of debt financing costs and debt discounts and mark to market of
the HVF swaps, unrealized transaction gains (losses) on Euro-denominated debt
and certain one-time charges and non-operational items. The contribution of our
segments to revenues and adjusted pre-tax income (loss) for the three and six
months ended June 30, 2007 and 2006 are summarized below (in millions of
dollars).

Three Months Ended June 30,

Revenues

Adjusted Pre-Tax
Income (Loss)

2007

2006

2007

2006

Car rental

$

1,740.3

$

1,618.2

$

153.1

$

112.9

Equipment rental

433.0

420.5

96.7

87.9

Corporate and other

2.4

1.9

(92.6

)

(84.1

)

Total

$

2,175.7

$

2,040.6

$

157.2

$

116.7

Six Months Ended June 30,

Revenues

Adjusted Pre-Tax
Income (Loss)

2007

2006

2007

2006

Car rental

$

3,270.0

$

3,039.8

$

190.0

$

130.4

Equipment rental

822.9

783.6

162.3

141.2

Corporate and other

4.3

3.8

(179.0

)

(166.5

)

Total

$

4,097.2

$

3,827.2

$

173.3

$

105.1

The following table reconciles
the income (loss) before income taxes and minority interest to adjusted pre-tax
income for the three and six months ended June 30, 2007 and 2006 (in
millions of dollars):

(a)Includes the purchase
accounting effects of the Acquisition on our results of operations relating to
increased depreciation and amortization of tangible and intangible assets and
accretion of revalued workers compensation and public liability and property
damages liabilities.

(b)Non-cash debt charges
represent the amortization of deferred financing costs and debt discount. In
the three months ended June 30, 2007, also includes $12.8 million
associated with the reversal of the ineffectiveness of the HVF swaps originally
recorded in the three months ended March 31, 2007. Additionally, in the
three months ended March 31, 2007 and six months ended June 30, 2007,
includes the write off of $16.1 million of unamortized debt costs associated
with a debt modification.

(c)Represents unrealized
losses on currency translation of Euro-denominated debt. On October 1,
2006, we designated this Euro-denominated debt as an effective net investment
hedge of our Euro-denominated net investment in our foreign operations and as
such we will no longer incur unrealized exchange transaction gains or losses in
our consolidated statement of operations.

(d)During the three months
and six months ended June 30, 2007, includes unrealized gains on interest
rate swaptions.

(e)During the three
months ended December 31, 2006, an adjustment of $5.6 million was recorded
to reduce the $6.6 million gain on the assignment of certain interest rate
swaps to $1.0 million. See Note 12 to the Notes to our audited annual
consolidated financial statements included in our Form 10-K.

(f)Represents a
decrease in employee vacation accrual during the three and six months ended June 30,
2007, relating to a change in our U.S. vacation policy which provides for
vacation entitlement to now be earned ratably throughout the year versus the
previous policy which provided for full vesting on January 1 of each year.

The
increase in total assets from December 31, 2006 to June 30, 2007 in
our condensed consolidated balance sheet was primarily due to an increase in
revenue earning vehicles in our car rental segment, partly offset by decreases
in restricted cash, cash and equivalents and receivables.

Accumulated other comprehensive income as of June 30,
2007 and December 31, 2006 primarily includes (in thousands of dollars)
accumulated translation gains of $129,116 and $91,629, respectively, a change
in unrecognized net periodic pension and postretirement costs of $22,190 and
$6,452, respectively, unrealized gains on cash flow hedges of $14,589 and
$3,543, respectively, and unrealized losses on our Euro-denominated debt of
$11,179 and $7,066, respectively. Comprehensive income for the three and six
months ended June 30, 2007 and 2006 was as follows (in thousands of
dollars):

Three Months Ended
June 30,

2007

2006

Net income

$

83,675

$

17,818

Other comprehensive income, net of tax:

Foreign currency
translation adjustments

25,021

48,771

Unrealized loss on
available-for-sale securities

(66

)

(23

)

Unrealized loss on
Euro-denominated debt

(1,983

)



Change in unrecognized net
periodic pension and postretirement
cost

15,772



Change in fair value of
cash flow hedges

13,969

13,506

Total other comprehensive
income

52,713

62,254

Comprehensive
income

$

136,388

$

80,072

Six Months Ended
June 30,

2007

2006

Net income (loss)

$

21,109

$

(31,418

)

Other comprehensive income, net of tax:

Foreign currency
translation adjustments

37,487

62,854

Unrealized loss on
available-for-sale securities

(73

)

(49

)

Unrealized loss on
Euro-denominated debt

(4,113

)



Change in unrecognized net
periodic pension and postretirement
cost

15,738



Change in fair value of
cash flow hedges

11,046

48,808

Total other comprehensive
income

60,085

111,613

Comprehensive
income

$

81,194

$

80,195

As of December 31, 2006,
we adopted SFAS No. 158, or SFAS No. 158, Employers Accounting
for Defined Benefit Pensions and Other Postretirement Benefits. We recorded
the impact of adopting this standard in Accumulated other comprehensive
income, resulting in an increase of $6.4 million, net of tax. Subsequent to
the filing of our 2006 Form 10-K, we identified that, although the impact
of adopting SFAS No. 158 was properly included as an increase in Accumulated
other comprehensive income on our consolidated statements of stockholders
equity, it should not have been recorded as a component of Total comprehensive
income. The impact of appropriately excluding the SFAS No. 158 adjustment
decreases Total comprehensive income from $217.9 million, as originally
reported, to $211.5 million, as adjusted.

As a result of the Acquisition, our capital structure
initially consisted of 229,500,000 shares of common stock outstanding. See Note
1Basis of Presentation in this Report and also Notes 1 and 6 to the Notes to
our audited annual consolidated financial statements included in our Form 10-K
for a discussion of the initial and subsequent capital structure changes. Basic
earnings (loss) per share has been computed based upon the weighted average
number of common shares outstanding during the applicable period. Diluted
earnings (loss) per share has been computed based upon the weighted average
number of common shares outstanding during the applicable period plus the
effect of all potentially dilutive common stock equivalents.

The
following table sets forth the computation of basic and diluted earnings (loss)
per share:

Three Months Ended
June 30,

2007

2006

Basic and diluted
earnings per share:

Numerator (in
thousands of dollars):

Net income

$

83,675

$

17,818

Denominator (in
thousands):

Weighted average shares used in basic computation

320,891

230,611

Add: Stock options

6,737



Weighted average shares used in diluted computation

327,628

230,611

Earnings per share, basic

$

0.26

$

0.08

Earnings per share, diluted

$

0.26

$

0.08

Six Months Ended
June 30,

2007

2006

Basic and diluted
earnings (loss) per share:

Numerator (in
thousands of dollars):

Net income (loss)

$

21,109

$

(31,418

)

Denominator (in
thousands):

Weighted average shares used in basic computation

320,759

230,059

Add: Stock options

3,368



Weighted average shares used in diluted computation

324,127

230,059

Earnings (loss) per
share, basic

$

0.07

$

(0.14

)

Earnings (loss) per share,
diluted

$

0.07

$

(0.14

)

The diluted earnings (loss)
per share computation for the three and six months ended June 30, 2007
excludes the weighted-average impact of approximately 21,000 stock options,
because such impact would be antidilutive.

As part of our effort to implement our strategy of
reducing operating costs, we are evaluating our workforce and operations and
making adjustments, including headcount reductions and process improvements to
optimize work flow at rental locations and maintenance facilities as well as
streamlining our back-office operations, initiating business process
reengineering and evaluating outsourcing opportunities. When we make
adjustments to our workforce and operations, we may incur incremental expenses
that delay the benefit of a more efficient workforce and operating structure,
but we believe that increasing our operating efficiency and reducing the costs
associated with the operation of our business are important to our long-term
competitiveness.

On January 5, 2007, we announced the first in a
series of initiatives to further improve our competitiveness through targeted
job reductions affecting approximately 200 employees primarily at our corporate
headquarters in Park Ridge, New Jersey and our U.S. service center in Oklahoma
City, Oklahoma.

On February 28, 2007, we announced the second
initiative to further improve our competitiveness and industry leadership
through targeted job reductions affecting approximately 1,350 employees
primarily in our U.S. car rental operations, with much smaller reductions
occurring in our U.S. equipment rental operations, the corporate headquarters
in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City,
Oklahoma, as well as in Canada, Puerto Rico, Brazil, Australia and New Zealand.

On June 1, 2007, we announced the third
initiative to further improve our operational efficiency through targeted
reductions affecting approximately 480 positions in our U.S. car and equipment
rental operations, as well as financial and reservations-related jobs in our
U.S. service center in Oklahoma City, Oklahoma.

Further cost reduction initiatives are in process. We
currently anticipate incurring future charges to earnings in connection with
those initiatives; however, we have not yet developed detailed estimates of
these expenses.

For the three months ended June 30, 2007, our
consolidated statement of operations includes restructuring charges relating to
the initiatives discussed above of $16.7 million, which is composed of $13.4
million of involuntary termination benefits, $6.4 million in consulting costs,
a net gain of $5.2 million related to pension and post employment benefits
and other charges of $2.1 million. The after-tax effect of the restructuring
charges reduced diluted earnings per share by $0.04 for the three months ended June 30,
2007.

For the six months ended June 30, 2007, our
consolidated statement of operations includes restructuring charges relating to
the initiatives discussed above of $49.3 million, which is composed of $37.8
million of involuntary termination benefits, $10.6 million in consulting costs,
a net gain of $2.2 million related to pension and post employment benefits
and other charges of $3.1 million. The after-tax effect of the restructuring
charges reduced diluted earnings per share by $0.10 for the six months ended June 30,
2007.

Restructuring
charges in the consolidated statement of operations can be summarized as
follows (in thousands of dollars):

Three Months
Ended
June 30, 2007

Six Months
Ended
June 30, 2007

By Caption:

Direct operating

$

11,922

$

24,867

Selling, general and administrative

4,713

24,417

Total

$

16,635

$

49,284

Three Months
Ended
June 30, 2007

Six Months
Ended
June 30, 2007

By Segment:

Car rental

$

14,661

$

34,411

Equipment rental

1,150

2,934

Corporate and other

824

11,939

Total

$

16,635

$

49,284

Our condensed consolidated
balance sheet included accruals relating to the restructuring program of $21.4
million. We expect to pay substantially all of the remaining restructuring
obligations during 2007. The following table sets forth the activity affecting
the accrual during the six months ended June 30, 2007 (in thousands of
dollars):

Involuntary
Termination
Benefits

Pension
and Post
Retirement
Expense

Consultant
Costs

Other

Total

Balance as of
beginning of year

$



$



$



$



$



Charges incurred

37,765

(2,170

)

10,586

3,103

49,284

Cash payments

(21,717

)

(7

)

(5,635

)

(1,518

)

(28,877

)

Other(1)

(1,104

)

2,277

98

(298

)

973

Balance as of June 30,
2007

$

14,944

$

100

$

5,049

$

1,287

$

21,380

(1)Includes
$1.5 million of stock-based employee compensation expense relating to the
acceleration of vesting for certain stock options which has been classified as Additional
paid-in capital on our condensed consolidated balance sheet, a reduction of
$2.2 million in pension and post retirement liabilities which have been included
within Accrued liabilities on our condensed consolidated balance sheet and
$0.4 million in translation gains, which have been included with Accumulated
other comprehensive income on our condensed consolidated balance sheet.

Prior to the Acquisition, we
were an indirect, wholly owned subsidiary of Ford. We and certain of our
subsidiaries had entered into contracts, or other transactions or
relationships, with Ford or subsidiaries of Ford, the most significant of which
are described below.

On July 5, 2005, Hertz, one of its wholly owned
subsidiaries and Ford signed a Master Supply and Advertising Agreement,
effective July 5, 2005 and expiring August 31, 2010, that covers the
2005 through 2010 vehicle model years. This agreement replaces and supersedes
previously existing joint advertising and vehicle supply agreements that would
have expired August 31, 2007.

During the six months ended June 30,
2007, we purchased cars from Ford and its subsidiaries at a cost of
approximately $1,909.0 million and sold cars to Ford and its subsidiaries under
various repurchase programs for approximately $1,013.8 million.

Certain employees of ours
participate in the stock option plan of Ford under Fords 1998 Long-Term
Incentive Plan. As a result of the Acquisition, all outstanding options issued
under this plan became vested.

Prior to the Acquisition, Hertz and its domestic
subsidiaries filed a consolidated federal income tax return with Ford. Pursuant
to a tax sharing agreement, or the Agreement, with Ford, current and deferred
taxes were reported, and paid to Ford, as if Hertz had filed its own
consolidated tax returns with its domestic subsidiaries. The Agreement provided
that Hertz was reimbursed for foreign tax credits in accordance with the
utilization of those credits by the Ford consolidated tax group.

On December 21, 2005, in
connection with the Acquisition, the Agreement with Ford was terminated. Upon
termination, all tax payables and receivables with Ford were cancelled and
neither Hertz nor Ford has any future rights or obligations under the
Agreement. Hertz may be exposed to tax liabilities attributable to periods it
was a consolidated subsidiary of Ford. While Ford has agreed to indemnify Hertz
for certain tax liabilities pursuant to the arrangements relating to our
separation from Ford, we cannot offer assurance that payments in respect of the
indemnification agreement will be available.

We and Ford also engage in
other transactions in the ordinary course of our respective businesses. These
transactions include providing car and equipment rental services to Ford and
providing insurance and insurance claim management services to Ford. In
addition, Ford subsidiaries are our car rental licensees in Scandinavia and
Finland.

In connection with the Acquisition, we entered into a
stockholders agreement, or, as amended, the Stockholders Agreement, with
investment funds associated with or designated by the Sponsors. The
Stockholders Agreement contains agreements that entitle investment funds
associated with or designated by the Sponsors to nominate all of our directors.
The director nominees are to include three nominees of an investment fund
associated with CD&R, two nominees of investment funds associated with
Carlyle, two nominees of an investment fund associated with MLGPE
(collectively, the Sponsor Designees) and up to six independent directors
(subject to unanimous consent of the Sponsor Designees), subject to adjustment
in the case that the applicable investment fund sells more than a specified
amount of its shareholdings in us. The Stockholders Agreement also provides
that our chief executive officer shall be designated as a director, unless
otherwise approved by a majority of the Sponsor Designees. In addition, the
Stockholders Agreement provides that one of the nominees of an investment fund
associated with CD&R shall serve as the chairman of the executive and
governance committee and, unless otherwise agreed by this fund, as Chairman of
the Board. On October 12, 2006, our Board elected four independent directors,
effective from the date of the completion of the initial public offering of our
common stock.

The Stockholders Agreement
also grants to the investment funds associated with CD&R or to the majority
of the Sponsor Designees the right to remove our chief executive officer. Any
replacement chief executive officer requires the consent of investment funds
associated with CD&R as well as investment funds associated with at least
one other Sponsor. It also contains restrictions on the transfer of our shares,
as well as tag-along and drag-along rights. The rights described above apply
only for so long as the investment funds associated with the applicable Sponsor
maintain certain specified minimum levels of shareholdings in us. In addition,
the Stockholders Agreement limits the rights of the investment funds associated
with or designated by the Sponsors that have invested in our common stock and
our affiliates, subject to several exceptions, to own, manage, operate or
control any of our competitors (as defined in the Stockholders Agreement). The
Stockholders Agreement may be amended from time to time in the future to
eliminate or modify these restrictions without our consent.

On the Closing Date, we
entered into a registration rights agreement, or, as amended, the Registration
Rights Agreement, with investment funds associated with or designated by the
Sponsors. The Registration Rights Agreement grants to certain of these
investment funds the right, following the earlier of the initial public
offering of our common stock and the eighth anniversary of the Closing Date, to
cause us, at our own expense, to use our best efforts to register such
securities held by the investment funds for public resale, subject to certain
limitations. The exercise of this right is limited to three requests by the
group of investment funds associated with each Sponsor, except for
registrations effected pursuant to Form S-3, which are unlimited,
subject to certain limitations, if we are eligible to use Form S-3.
In the event we register any of our common stock following our initial public
offering, these investment funds also have the right to require us to use our
best efforts to include shares of our common stock held by them, subject to
certain limitations, including as determined by the underwriters. The
Registration Rights Agreement also provides for us to indemnify

Hertzs obligations under the
Senior Term Facility and Senior ABL Facility are guaranteed by Hertzs
immediate parent, Hertz Investors, Inc. (previously known as CCMG
Corporation). Hertz Holdings is not a guarantor of these facilities. See Note 7Debt.

On the Closing Date, Hertz entered into customary
indemnification agreements with Hertz Holdings, the Sponsors and Hertz Holdings
stockholders affiliated with the Sponsors, pursuant to which Hertz Holdings and
Hertz will indemnify the Sponsors, the Hertz Holdings stockholders affiliated
with the Sponsors and their respective affiliates, directors, officers,
partners, members, employees, agents, representatives and controlling persons,
against certain liabilities arising out of the performance of a consulting
agreement with Hertz Holdings and each of the Sponsors and certain other claims
and liabilities, including liabilities arising out of financing arrangements or
securities offerings. We also entered into indemnification agreements with each
of our directors in connection with the initial public offering of our common
stock in November 2006. We have not recorded any liability because these
liabilities are considered to be de minimis.

Hertz Holdings has entered
into indemnification agreements with each of its directors. The indemnification
agreements provide the directors with contractual rights to the indemnification
and expense advancement rights provided under our by-laws, as well as
contractual rights to additional indemnification as provided in the
indemnification agreements.

On October 12, 2006, the Board of Directors of
Hertz Holdings approved the Director Plan. The stockholders of Hertz Holdings
approved the Director Plan on October 20, 2006. The Director Plan provides
for the grant of shares of common stock of Hertz Holdings, options to purchase
shares of common stock of Hertz Holdings and phantom shares, which are the
right to receive shares of common stock of Hertz Holdings at a specified point
in the future. A maximum of 3,500,000 shares are reserved for issuance under
the Director Plan.

Options granted under the Director Plan must be
granted at an exercise price no less than fair market value of such shares on
the date of grant. Options granted as part of a directors annual retainer fee
will be fully vested at the time of grant and will generally have a 10-year
term.

A director may generally elect to receive all or a
portion of fees that would otherwise be payable in cash in the form of shares
of common stock of Hertz Holdings having a fair market value at such time equal
to the amount of such fees. Any such shares will be paid to the director when
cash fees would otherwise be payable, although, if a director so chooses, these
shares may be payable on a tax-deferred basis in phantom shares, in which case
the actual shares of the common stock of Hertz Holdings will be paid to the
director promptly following the date on which he or she ceases to serve as a
director (or, if earlier, upon a change in control).

A director will recognize
ordinary income upon exercising options granted under the Director Plan in an
amount equal to the fair market value of the shares acquired on the date of
exercise, less the exercise price, and Hertz Holdings will have a corresponding
tax deduction at that time. In the case of shares issued in lieu of cash fees,
a director who is an individual will generally recognize ordinary income equal
to the fair market value of such shares on the date such shares are paid to the
director and Hertz Holdings will have a corresponding tax deduction at that
time. For the three and six months ended June 30, 2007, we recognized $0.4
million and $0.9 million, respectively, of expense relating to the Director
Plan in our consolidated statement of operations in Selling, general and
administrative expenses.

Affiliates of ML Global
Private Equity, L.P. and its related funds, which are stockholders of Hertz
Holdings, and of Merrill Lynch & Co., one of the underwriters in the
initial public offering of our common stock and the secondary offering by the
Sponsors, were lenders under the Hertz Holdings Loan Facility (which was repaid
with the proceeds of our initial public offering), are lenders under the
original and amended Senior Term Facility, the original and amended Senior ABL
Facility and the Fleet Financing Facility; acted as initial purchasers with
respect to the offerings of the Senior Notes and the Senior Subordinated Notes;
acted as structuring advisors and agents under Hertzs asset-backed facilities;
and acted as dealer managers and solicitation agents for Hertzs tender offers
for its existing debt securities in connection with the Acquisition.

In connection with our car and equipment rental
businesses, we enter into millions of rental transactions every year involving
millions of customers. In order to conduct those businesses, we also procure
goods and services from thousands of vendors. Some of those customers and
vendors may be affiliated with the Sponsors or members of our Board of
Directors. We believe that all such rental and procurement transactions have
been conducted on an arms-length basis and involved terms no less favorable to
us than those that we believe we would have obtained in the absence of such
affiliation. It is our managements practice to bring to the attention of our
Board of Directors any transaction, even if it arises in the ordinary course of
business, in which our management believes that the terms being sought by
transaction participants affiliated with the Sponsors or our Directors would be
less favorable to us than those to which we would agree absent such
affiliation.

We have been advised by
Merrill Lynch & Co., an affiliate of one of our Sponsors, that between
November 17, 2006, and April 19, 2007, Merrill Lynch & Co.,
or ML, engaged in principal trading activity in our common stock. Some of
those purchases and sales should have been reported to the Securities and
Exchange Commission on Form 4, but were not so reported. On May 11,
2007, June 21, 2007 and August 6, 2007, ML and certain of its
affiliates filed amended reports on Form 4 disclosing the current number
of shares of our common stock held by ML and its affiliates. On June 21,
2007, ML tendered to us the sum of $4.7 million for its short-swing profit
liability resulting from its principal trading activity that is subject to
recovery by us under Section 16 of the Securities Exchange Act of 1934, as
amended. We recorded $2.8 million, which is net of tax of $1.9 million, in our
condensed consolidated balance sheet in Additional paid-in capital. In
addition, because ML may be deemed to be an affiliate of Hertz Holdings and
there was no registration statement in effect with respect to its sale of
shares during this period, certain of these sales may have been made in
violation of Section 5 of the Securities Act of 1933, as amended.

In the ordinary course of
business, we execute contracts involving indemnifications standard in the
relevant industry and indemnifications specific to a transaction such as the
sale of a business. These indemnifications might include claims relating to the
following: environmental matters; intellectual property rights; governmental
regulations and employment-related matters; customer, supplier and other
commercial contractual relationships; and financial matters. Performance under
these indemnities would generally be triggered by a breach of terms of the
contract or by a third party claim. We regularly evaluate the probability of having
to incur costs associated with these indemnifications and have accrued for
expected losses that are probable and estimable. The types of indemnifications
for which payments are possible include the following:

We have indemnified various
parties for the costs associated with remediating numerous hazardous substance
storage, recycling or disposal sites in many states and, in some instances, for
natural resource damages. The amount of any such expenses or related natural
resource damages for which we may be held responsible could be substantial. The
probable losses that we expect to incur for such matters have been accrued, and
those losses are reflected in our condensed consolidated financial statements.
As of June 30, 2007 and December 31, 2006, the aggregate amounts
accrued for environmental liabilities, including liability for environmental
indemnities, reflected in our condensed consolidated balance sheet in Accrued
liabilities were $3.4 million and $3.7 million, respectively. The accrual
generally represents the estimated cost to study potential environmental issues
at sites deemed to require investigation or clean-up activities, and the
estimated cost to implement remediation actions, including on-going
maintenance, as required. Cost estimates are developed by site. Initial cost
estimates are based on historical experience at similar sites and are refined
over time on the basis of in-depth studies of the sites. For many sites, the
remediation costs and other damages for which we ultimately may be responsible
cannot be reasonably estimated because of uncertainties with respect to factors
such as our connection to the site, the materials there, the involvement of
other potentially responsible parties, the application of laws and other
standards or regulations, site conditions, and the nature and scope of
investigations, studies, and remediation to be undertaken (including the
technologies to be required and the extent, duration, and success of
remediation).

On March 15, 2004, Jose M. Gomez, individually and on behalf of all other similarly
situated persons, v. The Hertz Corporation was commenced in the
214th Judicial District Court of Nueces County, Texas. Gomez purports to be a
class action filed alternatively on behalf of all persons who were charged a

Fuel and Service Charge, or FSC, by us or all Texas
residents who were charged a FSC by us. The petition alleged that the FSC is an
unlawful penalty and that, therefore, it is void and unenforceable. The
plaintiff seeks an unspecified amount of compensatory damages, with the return
of all FSC paid or the difference between the FSC and our actual costs,
disgorgement of unearned profits, attorneys fees and costs. In response to
various motions by us, the plaintiff filed two amended petitions which scaled
back the putative class from a nationwide class to a class of all Texas
residents who were charged a FSC by us or by our Corpus Christi licensee. A new
cause of action was also added for conversion for which the plaintiff is
seeking punitive damages. After some limited discovery, we filed a motion for
summary judgment in December 2004. That motion was denied in January 2005.
The parties then engaged in more extensive discovery. In April 2006, the
plaintiff further amended his petition by adding a cause of action for
fraudulent misrepresentation and, at the plaintiffs request, a hearing on the
plaintiffs motion for class certification was scheduled for August 2006.
In May 2006, the plaintiff filed a fourth amended petition which deleted
the cause of action for conversion and the plaintiff also filed a first amended
motion for class certification in anticipation of the August 2006 hearing
on class certification. After the hearing, the plaintiff filed a fifth amended
petition seeking to further refine the putative class as including all Texas
residents who were charged a FSC in Texas after February 6, 2000. In October 2006,
the judge entered a class certification order which certified a class of all
Texas residents who were charged an FSC in Texas after February 6, 2000.
We are appealing the order.

On November 18, 2004, Keith Kochner, individually and on behalf of all similarly situated
persons, v. The Hertz Corporation was commenced in the District
Court in and for Tulsa County, State of Oklahoma. As with the Gomez case,
Kochner purports to be a class action, this time on behalf of Oklahoma
residents who rented from us and incurred our FSC. The petition alleged that
the imposition of the FSC is a breach of contract and amounts to an
unconscionable penalty or liquidated damages in violation of Article 2A of
the Oklahoma Uniform Commercial Code. The plaintiff seeks an unspecified amount
of compensatory damages, with the return of all FSC paid or the difference
between the FSC and our actual costs, disgorgement of unearned profits,
attorneys fees and costs. In March 2005, the trial court granted our
motion to dismiss the action but also granted the plaintiff the right to
replead. In April 2005, the plaintiff filed an amended class action
petition, newly alleging that our FSC violates the Oklahoma Consumer Protection
Act and that we have been unjustly enriched, and again alleging that our FSC is
unconscionable under Article 2A of the Oklahoma Uniform Commercial Code.
In May 2005, we filed a motion to dismiss the amended class action
petition. In October 2005, the court granted our motion to dismiss, but
allowed the plaintiff to file a second amended complaint and we then
answered the complaint. Discovery has now commenced.

On January 10, 2007, Marlena Guerra, individually and on behalf of all other similarly
situated persons, v. The Hertz Corporation was filed in the United
States District Court for the District of Nevada. As with the Gomez and Kochner
cases, Guerra purports to be a class action on behalf of all individuals and
business entities who rented vehicles at Las Vegas McCarran International
Airport and were charged a FSC. The complaint alleged that those customers who
paid the FSC were fraudulently charged a surcharge required for fuel in
violation of Nevadas Deceptive Trade Practices Act. The plaintiff also alleged
the FSC violates the Nevada Uniform Commercial Code, or UCC, since it is
unconscionable and operates as an unlawful liquidated damages provision.
Finally, the plaintiff claimed that we breached our own rental agreementwhich
the plaintiff claims to have been modified so as not to violate Nevada lawby
charging the FSC, since such charges violate the UCC and/or the prohibition
against fuel surcharges. The plaintiff seeks compensatory damages, including
the return of all FSC

paid or the difference between the FSC and its actual
costs, plus prejudgment interest, attorneys fees and costs. In March 2007,
we filed a motion to dismiss. In July 2007, the court granted our motion
to dismiss and ordered the plaintiffs complaint be dismissed with prejudice.

On August 15, 2006, Davis Landscape, Ltd., individually and on behalf of all others
similarly situated, v. Hertz Equipment Rental Corporation, was filed
in the United States District Court for the District of New Jersey. Davis
Landscape, Ltd., purports to be a nationwide class action on behalf of all
persons and business entities who rented equipment from HERC and who paid a
Loss Damage Waiver, or LDW, charge. The complaint alleges that the LDW is
deceptive and unconscionable as a matter of law under pertinent sections of New
Jersey law, including the New Jersey Consumer Fraud Act and the New Jersey
Uniform Commercial Code. The plaintiff seeks an unspecified amount of statutory
damages under the New Jersey Consumer Fraud Act, an unspecified amount of
compensatory damages with the return of all LDW charges paid, declaratory
relief and an injunction prohibiting HERC from engaging in acts with respect to
the LDW charge that violate the New Jersey Consumer Fraud Act. The complaint
also asks for attorneys fees and costs. In October 2006, we filed an
answer to the complaint. In November 2006, the plaintiff filed an amended
complaint adding an additional plaintiff, Miguel V. Pro, an individual residing
in Texas, and new claims relating to HERCs charging of an Environmental
Recovery Fee. Causes of action for breach of contract and breach of implied covenant
of good faith and fair dealing were also added. In January 2007, we filed
an answer to the amended complaint. Discovery has now commenced.

On October 13, 2006, Janet Sobel,
Daniel Dugan, and Lydia Lee, individually and on behalf of all others similarly
situated v. The Hertz Corporation and Enterprise Rent-A-Car Company
was filed in the United States District Court for the District of Nevada. Sobel
purports to be a nationwide class action on behalf of all persons who rented
cars from Hertz or Enterprise at airports in Nevada and whom Hertz or
Enterprise charged airport concession recovery fees. The complaint alleged that
the airport concession recovery fees violate certain provisions of Nevada law,
including Nevadas Deceptive Trade Practices Act. The plaintiffs seek an
unspecified amount of compensatory damages, restitution of any charges found to
be improper and an injunction prohibiting Hertz and Enterprise from quoting or
charging any of the fees prohibited by Nevada law. The complaint also asks for
attorneys fees and costs. In November 2006, the plaintiffs and Enterprise
stipulated and agreed that claims against Enterprise would be dismissed without
prejudice. In January 2007, we filed a motion to dismiss.

On May 3, 2007, Fun Services
of Kansas City, Inc., individually and as the representative of a class of
similarly-situated persons, v. Hertz Equipment Rental Corporation
was commenced in the District Court of Wyandotte County, Kansas. Fun Services
purports to be a class action on behalf of all persons in Kansas and throughout
the United States who on or after four years prior to the filing of the action
were sent facsimile messages of advertising materials relating to the
availability of property, goods or services by HERC and who did not provide
express permission for sending such faxes. The plaintiff asserts violations of
the Telephone Consumer Protection Act, 47 U.S.C. Section 227, and common
law conversion and the plaintiff is seeking damages and costs of suit. On June 6,
2007, we removed this action to the United States District Court for the
District of Kansas.

We believe that we have meritorious defenses in the
foregoing matters and will defend ourselves vigorously.

In addition, we are currently a defendant in numerous
actions and have received numerous claims on which actions have not yet been
commenced for public liability and property damage arising from the operation
of motor vehicles and equipment rented from us and our licensees. In the
aggregate, we

can be expected to expend material sums to defend and
settle public liability and property damage actions and claims or to pay
judgments resulting from them.

On February 19, 2007, The Hertz Corporation and TSD Rental LLC v. Enterprise Rent-A-Car
Company and The Crawford Group, Inc. was filed in the United
States District Court for the District of Massachusetts. In this action, we and
our co-plaintiff seek damages and injunctive relief based upon allegations that
Enterprise and its corporate parent, The Crawford Group, Inc., unlawfully
engaged in anticompetitive and unfair and deceptive business practices by
claiming to customers of Hertz that once Enterprise obtains a patent that it
has applied for relating to its insurance replacement reservation system, Hertz
will be prevented from using the co-plaintiffs EDiCAR system, which Hertz
currently uses in its insurance replacement business. The complaint alleges,
among other things, that Enterprises threats are improper because the
Enterprise patent, once issued, should be invalid and unenforceable. In April 2007,
Enterprise and Crawford filed a motion to dismiss and Hertz and TSD filed
opposition papers in May 2007. See Item 1ARisk Factors in our
Form 10-K. Enterprise and Crawford filed a motion to dismiss in April 2007
and Hertz and TSD filed opposition papers in May 2007.

In addition to the foregoing, various legal actions,
claims and governmental inquiries and proceedings are pending or may be
instituted or asserted in the future against us and our subsidiaries.
Litigation is subject to many uncertainties, and the outcome of the individual
litigated matters is not predictable with assurance. It is possible that
certain of the actions, claims, inquiries or proceedings, including those
discussed above, could be decided unfavorably to us or any of our subsidiaries
involved. Although the amount of liability with respect to these matters cannot
be ascertained, potential liability in excess of related accruals is not
expected to materially affect our consolidated financial position, results of
operations or cash flows, but it could be material in the period in which it is
recorded.

32

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides
information that management believes to be relevant to understanding our
consolidated financial condition and results of operations. This discussion
should be read in conjunction with the financial statements and the related
notes thereto contained in our condensed consolidated financial statements
included in this Form 10-Q for the three and six months ended June 30,
2007, or this Report.

Certain statements contained or incorporated by
reference in this Report including, without limitation, those concerning our
liquidity and capital resources, contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 concerning
our results of operations; economic performance; financial condition;
management forecasts; efficiencies, cost savings and opportunities to increase
productivity and profitability; income and margins; liquidity; anticipated
growth; economies of scale; the economy; future economic performance; our
ability to maintain profitability during adverse economic cycles and
unfavorable external events; future acquisitions and dispositions; litigation;
potential and contingent liabilities; managements plans; taxes; and
refinancing of existing debt. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. These statements often
include words such as believes, expects, projects, anticipates, intends,
plans, estimates, seeks, will, may, should, forecasts or similar
expressions.

Forward-looking statements are not guarantees of
performance or results and by their nature are subject to inherent risks and
uncertainties. We caution you therefore that you should not rely on these
forward-looking statements. You should understand that the risks and
uncertainties discussed in Item 1ARisk Factors and elsewhere in Hertz Global
Holdings, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 31, 2006, filed with the United States Securities and
Exchange Commission, or the SEC, on March 30, 2007, or our Form 10-K,
could affect our future results and could cause those results or other outcomes
to differ materially from those expressed or implied in our forward-looking
statements.

We are a successor to
corporations that have been engaged in the car and truck rental and leasing
business since 1918 and the equipment rental business since 1965. Hertz
Holdings was incorporated in Delaware in 2005 and had no operations prior to
the Acquisition (as defined below). Hertz was incorporated in Delaware in 1967.
Ford Motor Company, or Ford, acquired an ownership interest in

33

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

On December 21, 2005, or
the Closing Date, investment funds associated with or designated by Clayton,
Dubilier & Rice, Inc., or CD&R, The Carlyle Group, or Carlyle,
and Merrill Lynch Global Private Equity, or MLGPE, or collectively the Sponsors,
through CCMG Acquisition Corporation, a wholly owned subsidiary of Hertz
Holdings (previously known as CCMG Holdings, Inc.) acquired all of Hertzs
common stock from Ford Holdings LLC for aggregate consideration of $4,379
million in cash, debt refinanced or assumed of $10,116 million and transaction
fees and expenses of $447 million.

We refer to the acquisition of
all of Hertzs common stock through a wholly owned subsidiary of Hertz Holdings
as the Acquisition. We refer to the Acquisition, together with related
transactions entered into to finance the cash consideration for the
Acquisition, to refinance certain of our existing indebtedness and to pay
related transaction fees and expenses, as the Transactions.

In November 2006, we
completed our initial public offering of 88,235,000 shares of our common stock
at a per share price of $15.00, with proceeds to us before underwriting
discounts and offering expenses of approximately $1.3 billion. The proceeds
were used to repay borrowings that were outstanding under a $1.0 billion loan
facility entered into by Hertz Holdings and to pay related transaction fees and
expenses. The proceeds were also used to pay special cash dividends of $1.12 per
share on November 21, 2006 to stockholders of record of Hertz Holdings
immediately prior to the initial public offering.

In June 2007, the Sponsors completed a secondary
public offering of 51,750,000 shares of their Hertz Holdings common stock at a
per share price of $22.25. We did not receive any of the proceeds from the sale
of these shares. We paid all of the expenses of the offering, excluding
underwriting discounts and commissions of the selling stockholders, pursuant to
a registration rights agreement we entered into at the time of the Acquisition.
These expenses aggregated to approximately $2.0 million. Immediately following
the secondary public offering, the Sponsors ownership percentage in us
decreased to approximately 55%.

We have been advised by
Merrill Lynch & Co., an affiliate of one of our Sponsors, that between
November 17, 2006, and April 19, 2007, Merrill Lynch & Co.,
or ML, engaged in principal trading activity in our common stock. Some of
those purchases and sales should have been reported to the Securities and
Exchange Commission on Form 4, but were not so reported. On May 11,
2007, June 21, 2007 and August 6, 2007, ML and certain of its
affiliates filed amended reports on Form 4 disclosing the current number
of shares of our common stock held by ML and its affiliates. On June 21,
2007, ML tendered to us the sum of $4.7 million for its short-swing profit
liability resulting from its principal trading activity that is subject to
recovery by us under Section 16 of the Securities Exchange Act of 1934, as
amended. We recorded $2.8 million, which is net of tax of $1.9 million, in our
condensed consolidated balance sheet in Additional paid-in capital. In
addition, because ML may be deemed to be an affiliate of Hertz Holdings and
there was no registration statement in effect with respect to its sale of
shares during this period, certain of these sales may have been made in
violation of Section 5 of the Securities Act of 1933, as amended.

We are engaged principally in
the business of renting cars and renting equipment.

Our
revenues primarily are derived from rental and related charges and consist of:

·Car
rental revenues (revenues from all company-operated car rental
operations, including charges to customers for the reimbursement of costs
incurred relating to airport concession

34

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

fees and vehicle
license fees, the fueling of vehicles and the sale of loss or collision damage
waivers, liability insurance coverage and other products);

·Equipment
rental revenues (revenues from all company-operated equipment rental
operations, including amounts charged to customers for the fueling and delivery
of equipment and sale of loss damage waivers); and

Our equipment rental business
also derives revenues from the sale of new equipment and consumables.

Our
expenses primarily consist of:

·Direct
operating expenses (primarily wages and related benefits; commissions and
concession fees paid to airport authorities, travel agents and others;
facility, self-insurance and reservations costs; the cost of new equipment and
consumables purchased for resale; and other costs relating to the operation and
rental of revenue earning equipment, such as damage, maintenance and fuel
costs);

·Depreciation
expense relating to revenue earning equipment (including net gains or losses on
the disposal of such equipment). Revenue earning equipment includes cars and
equipment;

·Selling,
general and administrative expenses (including advertising); and

·Interest
expense, net of interest income.

The car and equipment rental
industries are significantly influenced by general economic conditions. The car
rental industry is also significantly influenced by developments in the travel
industry, and, particularly, in airline passenger traffic. Our profitability is
primarily a function of the volume, mix and pricing of rental transactions and
the utilization of cars and equipment. Significant changes in the purchase
price of cars and equipment or interest rates can also have a significant
effect on our profitability depending on our ability to adjust pricing for
these changes. In the United States, increases of approximately 17% in monthly
per-car depreciation costs for 2006 model year program cars began to
adversely affect our results of operations in the fourth quarter of 2005, as
those cars began to enter our fleet. On a comparable basis, we expect 2007
model year program vehicle depreciation costs to rise approximately 20% and
per-car depreciation costs for 2007 model year U.S. risk cars to decline
slightly. As a consequence of those changes in per-car costs, as well as the
larger proportion of our U.S. fleet we expect to purchase as risk cars and
other actions we expect to take to mitigate program car cost increases, we
expect our net per-car depreciation costs for 2007 model year cars in the
United States will increase by less than 4% from our net per-car depreciation
costs for 2006 model year U.S. cars. We began to experience the impact of those
cost changes and mitigation actions in the fourth quarter of 2006, as
substantial numbers of 2007 model year cars began to enter our U.S. rental
fleet. Our business requires significant expenditures for cars and equipment,
and consequently we require substantial liquidity to finance such expenditures.

Our car rental and equipment
rental operations are seasonal businesses, with decreased levels of business in
the winter months and heightened activity during the spring and summer. We have
the ability to dynamically manage fleet capacity, the most significant portion
of our cost structure, to meet market demand. For instance, to accommodate
increased demand, we increase our available fleet and staff during the second
and third quarters of the year. As business demand declines, fleet and staff
are decreased accordingly. A number of our other major operating costs,
including airport concession fees, commissions and vehicle liability expenses,
are directly related to revenues or

35

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

transaction volumes. In
addition, our management expects to utilize enhanced process improvements, including
efficiency initiatives and use of our information systems, to help manage our
variable costs. Approximately two-thirds of our typical annual operating
costs represent variable costs, while the remaining one-third are fixed
or semi-fixed. We also maintain a flexible workforce, with a significant
number of part time and seasonal workers. However, certain operating expenses,
including minimum concession fees, rent, insurance, and administrative
overhead, remain fixed and cannot be adjusted for seasonal demand.

As part of our effort to
implement our strategy of reducing operating costs, we are evaluating our
workforce and operations and making adjustments, including headcount reductions
and process improvements to optimize work flow at rental locations and
maintenance facilities as well as streamlining our back-office operations,
initiating business process reengineering and evaluating outsourcing
opportunities. When we make adjustments to our workforce and operations, we may
incur incremental expenses that delay the benefit of a more efficient workforce
and operating structure, but we believe that increasing our operating
efficiency and reducing the costs associated with the operation of our business
are important to our long-term competitiveness.

On January 5, 2007, we
announced the first in a series of initiatives to further improve our
competitiveness through targeted job reductions affecting approximately 200
employees primarily at our corporate headquarters in Park Ridge, New Jersey and
our U.S. service center in Oklahoma City, Oklahoma. These reductions are
expected to result in annualized savings of up to $15.8 million.

On February 28, 2007, we
announced the second initiative to further improve our competitiveness and
industry leadership through targeted job reductions affecting approximately 1,350 employees primarily in our U.S. car rental
operations, with much smaller reductions occurring in our U.S. equipment rental
operations, the corporate headquarters in Park Ridge, New Jersey, and the U.S.
service center in Oklahoma City, Oklahoma, as well as in Canada, Puerto Rico,
Brazil, Australia and New Zealand. These reductions are expected to
result in annualized savings of up to $125.0 million.

On June 1, 2007, we
announced the third initiative to further improve our operational efficiency
through targeted reductions affecting approximately 480 positions in our U.S.
car and equipment rental operations, as well as financial and
reservations-related jobs in our U.S. service center in Oklahoma City, Oklahoma.
These reductions are expected to result in approximately $24.0 million of
annualized savings.

We recognized $16.7 million
and $49.3 million in the three and six months ended June 30, 2007,
respectively, relating to our restructuring initiatives discussed above.
Beginning in the fourth quarter of 2007 and continuing into 2008, we expect to
implement cost initiatives in our European operations that are expected to
result in additional annualized savings of approximately $50.0 million. We plan
to announce, as plans are finalized, other efficiency initiatives during 2007
and 2008. We currently anticipate incurring future charges to earnings in
connection with those initiatives; however, we have not yet developed detailed
estimates of these expenses.

For the year ended December 31,
2006, based on publicly available information, we believe some U.S. car rental
companies experienced transaction day growth and pricing increases compared to
comparable prior periods. For the year ended December 31, 2006, we
experienced a less than one percentage point volume decline versus the prior
period in the U.S., while pricing was up over three percentage points. The
volume decline was the result of a reduction in fleet volume given significant
fleet cost increases, higher leisure pricing for the period from March through
May 2006 and the difficult comparison in the quarter ending December 31,
2006 due to the extraordinarily high volumes of post-hurricane rentals in the
Gulf Coast and Florida areas in 2005. During the year ended December 31,
2006, we experienced low to mid single digit transaction day growth in our
European

36

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

operations and our car rental
pricing was above the level of our pricing during the year ended December 31,
2005.

For the six months ended June 30,
2007, based on publicly available information, we believe most major US car
rental brands experienced positive transaction day increases with varying
rental rate revenue per transaction day, or RPD, changes compared to
comparable prior periods. For the six months ended June 30, 2007, we
experienced higher worldwide car rental volumes, while RPD for worldwide car
rental declined, as a decline in U.S. RPD was partly offset by a slight
improvement in international RPD.

In the three years ended December 31,
2006, we increased the number of our off-airport rental locations in the United
States by approximately 32% to approximately 1,380 locations, and as of June 30,
2007, we had approximately 1,465 off-airport locations. Revenues from our U.S.
off-airport operations grew during the same period, representing $890.1
million, $845.8 million and $697.4 million of our total car rental
revenues in the years ended December 31, 2006, 2005 and 2004,
respectively. Our expanding U.S. off-airport operations represented $455.4
million and $427.9 million of our total car rental revenues in the six months
ended June 30, 2007 and 2006, respectively. In 2007 and subsequent years
our strategy will include selected openings of new off-airport locations, the
disciplined evaluation of existing locations and the pursuit of same-store
sales growth. Our strategy includes increasing penetration in the off-airport
market and growing the online leisure market, particularly in the longer length
weekly sector, which is characterized by lower vehicle cost and lower
transaction cost at lower RPD. Increasing our penetration in these sectors is
consistent with our long term strategy to generate profitable growth. When we
open a new off-airport location, we incur a number of costs, including those
relating to site selection, lease negotiation, recruitment of employees,
selection and development of managers, initial sales activities and integration
of our systems with those of the companies who will reimburse the locations
replacement renters for their rentals. A new off-airport location, once opened,
takes time to generate its full potential revenues, and as a result revenues at
new locations do not initially cover their start-up costs and often do not, for
some time, cover the costs of their ongoing operation.

HERC experienced higher
equipment rental pricing and volumes worldwide for the year ended December 31,
2006 and the first half of 2007. In 2006, HERC added twelve new locations and
closed two locations in the United States, added two new locations in Canada
and added eight new locations and closed one location in Europe. During the six
months ended June 30, 2007, HERC added eight new locations and closed six
locations in the United States and Canada and added two new locations in
Europe. HERC expects to add approximately 4 to 6 additional new locations in
the United States, one additional location in Canada and 5 to 10 additional new
locations in Europe during the remainder of the year. In its U.S. expansion, we
expect HERC will incur non-fleet start-up costs of approximately $0.9 million
per location and additional fleet acquisition costs over an initial twelve-month
period of approximately $4.6 million per location. In its European expansion, we expect HERC
will incur lower start-up costs per location as compared with the United
States.

37

ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Three
months ended June 30, 2007 compared with Three months ended June 30,
2006

Summary

The
following table sets forth the percentage of total revenues represented by the
various line items set forth in our consolidated statements of operations for
the three months ended June 30, 2007 and 2006 (in millions of dollars):